Don’t Let AT&T Exploit Your Distrust of Trump

He may hate CNN, but there’s good reasons for a sell-off.

November 9, 2017

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It’s natural to believe that Donald Trump runs the government as a personal self-aggrandizement machine with an eye toward rewarding friends and punishing enemies. We have enough case studies reinforcing that belief. But this perception can also be a curse, with the appearance of impropriety overwhelming all policy decisions, even ones that miraculously appear to be half-decent.

That’s what’s going on with the breathless news stories around the proposed $85.4 billion merger between AT&T and Time Warner, creating an integrated conglomerate in telecommunications and entertainment. The Financial Timesreported yesterday that Trump’s Justice Department demanded that AT&T sell off CNN, a network Trump has targeted as “fake news,” as a condition of the merger. “It’s all about CNN,” said the anonymous leaker. And pundits jumped on this narrative—almost certainly introduced by AT&T and its allies—to lament the rise of government-by-vendetta and the end of the free press as we know it. Even lawmakers got into the act, expressing concern.

Later reports showed this to be untrue. The Justice Department offered AT&T two choices: Sell Turner Broadcasting, a collection of over a dozen stations of which CNN is only a part, or sell off DirecTV, AT&T’s satellite-television distributor. If one of the options for AT&T involves keeping CNN, I don’t know how “it’s all about CNN” could be true. AT&T’s CEO Randall Stephenson further muddied the waters by saying today, “I have never been told that the price of getting deal done was selling CNN.”

Why would the Justice Department require this divestment? The answer goes back to why this merger is terrible for consumers and the media industry as a whole.

You may be aware that we have a terribly consolidated telecommunications landscape. Cable, broadband, and wireless services have fallen into fewer and fewer hands. In most of the country, people have just one choice for their cable or broadband provider. And these distribution monopolies want to control the monopolies that produce the content.

Back in 2009, the cable company Comcast announced the purchase of NBC Universal. And the fear there was all about vertical integration. If a cable provider owned a bunch of networks and movie studios, it could use its dominance in distribution to favor its own content and blocking competitors on its network. Or it could increase the cost of licensing its own channels to rival cable companies, or simply prevent those channels from appearing on streaming services. If you control a chunk of programming and the method of distributing that programming, it opens up opportunities for mischief.

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The Obama Justice Department and Federal Communications Commission dealt with this concern by approving the merger with conditions, sometimes referred to as “behavioral remedies.” It said that Comcast had to negotiate prices with competitors who want to carry NBC programming, rather than set them unilaterally. It required Comcast to make “comparable programming” available to all. And it sought to prevent bundling and other exercises of market power.

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These remedies didn’t work, as Senator Al Franken explained. Comcast violated the conditions, for example by putting NBC channels in prime positions on Comcast cable and moving competitors like Bloomberg to the nether regions, or favoring NBC channels in a live-streaming service called StreamTV. Comcast has faced numerous lawsuits and complaints over these violations, but profited handsomely from the merger.

Makan Delrahim, the new head of the Justice Department’s antitrust division, has said publicly that he doesn’t like behavioral remedies, finding them ineffective. Yet the AT&T/Time Warner deal raises the exact same concerns as Comcast/NBC. And the evidence suggests the concerns about Comcast were valid. So what’s DoJ to do?

If you believe (correctly, I’d say) that behavioral remedies are too convoluted and hard to enforce, the options available are to reject the deal or force a divestiture. If you don’t want the same company owning the pipes of distribution and the content flowing through those pipes, they have to either sell off the content or the pipes. And that’s precisely what the Justice Department asked of AT&T.

I don’t know how that plays into the narrative of Donald Trump’s assault on CNN. It’s not even clear to me that CNN would be worse off if Turner Broadcasting, a diverse bundle of sought-out programming, were sold to a willing purchaser. The Justice Department simply appears to want to prevent the potential hazards of vertical combination.

Antitrust lawyers have been conditioned over the past 40 years into thinking that vertical combination is fine and should never be questioned. Witness the incredulous takes from the antitrust bar at the Justice Department’s objections. But this is well within legal precedent. In fact, one application came when Time Warner bought Turner Broadcasting in the first place. In 1996, the government forced John Malone, a part-owner in both Turner and a major cable operator called TCI, to divest of most of his holding. They specifically didn’t want TCI to have a stake in a large chunk of cable programming while being a major cable operator.

Also, this deal isn’t entirely vertical. DirecTV offers a streaming service called DirecTV Now, a direct competitor to Time Warner’s HBO Now offering. If the two companies merge, you could expect AT&T to yank HBO Now and bundle it with their other channels in the DirecTV Now package. That’s why divesting of DirecTV would open more consumer choice in the online video market. AT&T executives have said explicitly that DirecTV Now is critical to the deal, suggesting that foreclosing competition is the whole point.

I don’t even think the Justice Department request goes far enough. Even with the divestiture, AT&T could still pair HBO and Warner Brothers with DirecTV, or its U-verse cable service with the Turner channels. But some divestiture would enable rival services to compete, and maintaining neutrality between carriers and content creators would force that competition on price and quality instead of how many channels one conglomerate controls. In other words, it’s far more thought-out than “Trump hates CNN,” though that’s how it’s being played in the media.

But AT&T clearly doesn’t want to abide by this divestiture request, and it is planning to fight it in court. And that fight started yesterday when the corporation leaked the news that DoJ wanted it to sell CNN. It knew exactly what reaction that would provoke: that Trump was meddling in antitrust law to attack an enemy. This will likely also be AT&T’s strategy in court. The company will claim that Trump has always had it in for CNN, said during the campaign that his administration would never agree to the proposed merger, and interfered illegally in the process for vindictive ends.

All of those facts are basically true. The tragic part of this situation is that Trump is, in fact, a vindictive bully. So even if his Justice Department merely sought to handle a real threat of media and telecom consolidation with a structural remedy that’s well within prior practice, the appearance of a conflict of interest might be enough for a judge to side with AT&T. So this story is about AT&T’s playing the negative public sentiment toward Trump to its advantage, to win in the court of public opinion for its really damaging merger with Time Warner.

As Zach Carter noted, Trump is the worst possible messenger for an anti-monopoly message. Unfortunately, we cannot trust him to follow established norms and stay out of law-enforcement matters. His big mouth might turn what would have been a rare bright spot, a long-overdue crackdown on media concentration, into another failure.

David DayenDavid Dayen is the author of Chain of Title: How Three Ordinary Americans Uncovered Wall Street’s Great Foreclosure Fraud, which won the Studs and Ida Terkel Prize.